Trump, demonetisation impact: Invest on the basis of data, not speculation about event results

Instead of speculating on what a new president might do, it will be best to look at the data that businesses publish periodically to track their performance.

Nov 14, 2016, 06.30 AM IST

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"It is a capital mistake to theorise before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts."

Only those people enjoy volatility in the stock markets who either have a lot of cash to deploy when the markets crash, or who are fully invested when the markets rise. But the most common response to sharp rises and declines in stock prices is a generally elevated emotional state that may lead us to act irresponsibly.

During the US election results, the US markets swung momentarily, raising hopes and creating fear. We could spend our entire lives trying to dissect the meaning of these sharp movements, but we will still fall short of time. It’s very tempting to correlate the market’s movement to a highly visible, uncontrollably covered media frenzy. After all, we can connect only those dots that are clearly visible.

Behind all the drowning headlines lie wonderful businesses, entrepreneurs and our lives which go on regardless.

Let’s zoom out and take a quick look at how real life has a tendency to keep going irrespective of who wins an election:

1. If we wanted to buy something online, wouldn’t we still seek out that great deal?

2. If we want to buy groceries, soap or toothpaste, won’t it be like any other day?

3. Will our social media, online activity, change because a new party or a new candidate is in power?

4. If we have a medical condition, would we alter our doses based on who won an election?

5. If a business has needs for raw materials, financing, labour, services, will they stop their business forever?

Routine habits or regular requirements are hardly affected in the longer run and businesses who benefit from such habits also tend to adapt and get back on track sooner or later, regardless of what the market might have us believe.

If investors had put in their money for the shorter term, with the election as a trigger, they’d have to take the roller coaster ride in the market and hope to not end up on the wrong side. But, I think it will be useful to revisit those businesses which are beaten down unfairly and have a strong, consistent consumption record of their products and services. Instead of speculating on what a new president might do, it will be best to look at the data that businesses publish periodically to track their performance. The data will speak more about what the business is up to than what the price will tell us. Instead of panicking over political uncertainty, sometimes, it’s useful to take the time out to understand what is really happening on the ground.

To quote Sherlock Holmes: “It is a capital mistake to theorise before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.”(By Raunak Onkar, Co-Fund Manager Equity, PPFAS Mutual Fund)